Tessa Wijaya, Cofounder and COO of leading payments firm Xendit, details the dramatic shift in payments use cases during the COVID era, away from the embattled online travel segment; and toward other payments scenarios such as crypto exchanges, gaming and edtech. Indonesia's first graduating start-up from the Y-Combinator program, Xendit continues to integrate with leading BNPL providers, SME book-keeping platforms and a host of other fintech solutions to grow both within Indonesia, and increasingly regionally.
Tessa Wijaya, Cofounder and COO of leading payments firm Xendit, details the dramatic shift in payments use cases during the COVID era, away from the embattled online travel segment; and toward other payments scenarios such as crypto exchanges, gaming and edtech. Indonesia's first graduating start-up from the Y-Combinator program, Xendit continues to integrate with leading BNPL providers, SME book-keeping platforms and a host of other fintech solutions to grow both within Indonesia, and increasingly regionally.
ALAN 0:12
Welcome to the 29th episode of Season Two of the Indo Tekno podcast. Selamat datang semuanya! I'm Alan Hellawell, founder of tech consultancy Gizmo Advisors, and Venture Partner Alpha JWC Ventures. FinTech is now far and away the largest venture capital investment category by number of backed startups in Southeast Asia and Indonesia, according to cio.com. And payments is the fuel behind this engine of growth. E-money transactions alone jumped well over 100% from January 2020 to January 2021 in Indonesia according to Dealco. We are extremely pleased to have joined today Tessa Wijaya, the Co-founder and COO of Xendit (spelled with an "X"). Xendit provides payment infrastructure across Indonesia and other parts of Southeast Asia. Tess, thanks so much for joining.
TESSA WIJAYA 1:01
Great to be here today, Alan. Thanks for having me.
ALAN 1:04
You're very welcome Tess. Now I have found out that there are certain parts of the tech ecosystem that require little explanation, such as basic e-commerce or online gaming. I have to tell you payments however looks to me like one massive puzzle. So Tess can we start off by describing where exactly the Xendit solution sits within the payments ecosystem?
TESSA WIJAYA 1:26
Certainly. I hear you. Payments can be really, really complex. Really how I like to describe Xendit is that we're the connector between merchants, banks, and international payment platforms like Visa and MasterCard. So if you can imagine a really big highway with a lot of trucks moving money around, obviously all happening in the digital world, Xendit really is a truck that kind of moves the money around to the right place. So that when you want to go shopping on an e-commerce platform and you want to charge your card, we're there for you. We're the one who's telling Visa: "Hey, this guy wants to pay by cards." We're the one that settles the money to the merchants afterwards. So yeah, that's in a nutshell what Xendit is.
ALAN 2:07
Well, thanks for that. I can say I'm a little less illiterate with that very helpful explanation. If we think about other global category leaders Tess, whom do we most resemble?
TESSA WIJAYA 2:18
That's a really good question. I think we like to say that Xendit is the "Stripe of Asia". That's really the easiest way for people outside of Southeast Asia to really think about or understand Xendit, but in essence, we provide payment services both for enterprise customers, like our Tokopedia's of the world, or Traveloka's is the world rather; to small SMEs, like the moms-and-pops who are trying to sell everything from your chilli sauce to clothing online.
ALAN 2:45
Understood. So Tess, if our competition does include the likes of Stripe and others, how do we envision competing with these guys? Many of them are already expanding their headcount very rapidly into the region.
TESSA WIJAYA 2:57
What makes Xendit unique is that we are really hyper-localised, I like to say. So we understand geographically and culturally how different Southeast Asia is. If you think about the Stripes of the world, what they do a lot of times is provide payments through cards. So essentially, in the Western world, all they do is card processing. You said yourself in your introduction that transaction through your wallets have been going off the roof. And that really explains that, hey, in Southeast Asia it is about everything else but cards. It is extremely complex. And that's why the likes of Xendit needs to be here.
ALAN 3:36
Understood. So are we saying that we're used in transactions between businesses? In other words, B2B transactions? Or are we instead more used by the consumer in B2C scenarios such as, I don't know, paying for an online purchase or buying a coffee at a Kopi Kenangan outlet?
TESSA WIJAYA 3:54
I guess we're a combination of both. So we serve the merchants. So in that sense, we're a B2B platform. But customers are actually often using our rails when they're doing payments. When they're, for example, shopping in an e-commerce platform. Oftentimes Alan, for example, if you're buying some sort of goods in an e-commerce platform, you don't actually realise you're using Xendit. You think the merchant itself are the ones who are taking on your credit card number, or your virtual account number. And actually in the background, it's us doing all the work.
ALAN 4:25
So you're basically powering that transaction?
TESSA WIJAYA 4:28
That's right. We like to say "Powered by Xendit", even though it's sometimes working in the background.
ALAN 4:34
Now Tess, what is our most powerful and prolific channel to bringing on new customers? Is it the e-commerce platforms? Is it a direct sales force? Or is it a strategic partner?
TESSA WIJAYA 4:45
Yeah, that's a really good one. So I think a lot of our customers actually come to us inbound via word-of-mouth. We've just been so good at providing for all these global players to come into market in Southeast Asia. What's really interesting though, Alan, in terms of what's happening in-market is that most of our customers, the ones who are really in need of accepting payments instantly and dispersing payments instantly, are the other FinTech players. So a lot of our bigger customers are industries like crypto exchanges, or other FinTech platforms that are doing accounting for the likes of warungs are mom-and-pop shops. Interestingly, they've been the ones who are saying, "Hey, we need your help or payments".
ALAN 5:28
Understood. That's really helpful. Maybe a quick tangent, if you don't mind. Where did you grow up, Tess?
TESSA WIJAYA 5:34
Yeah. So I grew up in Sukabumi. I was born and raised there. That's a really small town in West Java. I did move to Jakarta during my high school days. And then I moved overseas. I guess I've been a little bit of a citizen of the world. I have been moving around between Australia, New York, Hong Kong, and then back home here in Indonesia.
ALAN 5:55
And I see you did your undergraduate studies at Syracuse University in New York State, which happens to be a 90 minute ride from where I grew up in Rochester, New York. How the heck could you have agreed to enduring one of the world's worst winters?
TESSA WIJAYA 6:09
I can tell you, Alan, I think I was a little bit duped. Those were back in the days where the internet was still in its early stages. And they advertised that Syracuse was really close to New York, something like an hour, an hour and a half. I didn't realise it was actually a five hour drive. And I was really, I didn't even understand what cold was until I arrived in Syracuse. It was crazy.
ALAN 6:33
You must have very thick skin to show for it. Now I believe that Xendit was the very first Indonesian company to go through Y Combinator's legendary accelerator programme. When was that? And what exactly did the programme entail?
TESSA WIJAYA 6:47
We went through "YCom" in 2015. And essentially, at that time, it was the three co-founders, sans myself, the guys who were at Berkeley together. Basically, that particular programme was you get into this whole summer, you spend that time trying to explore and expand your business. It all ends in a demo day where you should be showing to investors what the business model was like and what your app or product is like. And then you pitch to them. And you try as hard as possible to get an investment from that round. We were the very first one coming out of Indonesia. And it's really a source of great pride. Because, before that investors wouldn't even be able to tell you the difference between Bali and Indonesia. Sometimes they ask us: "Hey, is Indonesia in Bali?" So, it's been a source of great pride to be able to bring that flag to YCom.
ALAN 7:37
I can imagine that. Now a basic question Tess. How does Xendit make its money? Are customers paying a monthly fee? Are they paying us as a percentage of gross merchandise value or GMV transacted? Or is our business model tied to something else?
TESSA WIJAYA 7:52
Our business model is actually really, really simple. This is again, another source of pride, Alan. Because before we came into the market, all sorts of payment gateways were charging hidden fees, monthly fees, cancellation fees, and whatever else. Really the way Xendit makes money is on a per-transaction basis. So we only charge for successful transactions detected, successful payments being made and successful disbursements being made as well. So very, very simple business model. We mark up to whatever the banks or Visa or MasterCard or the e-wallets give us, and that's how we make money.
ALAN 8:26
Understood. Now I saw you reference a 700% CAGR (or a "compound annual growth rate.") What is likely to drive our growth going forward? Is it mostly growth from existing customers? Will it be more growth from new customers? Or is it the addition of new services?
TESSA WIJAYA 8:45
I think what we're going to be seeing in Indonesia specifically is growth from two things. One would be the SME market. As you are well aware, the pandemic has forced a lot of businesses to go online, even if they're not yet ready to do so. What we've seen in the past year is a surge in signups from these SMEs. Suddenly, people in Bali who have small businesses to teach other people to cook, because no tourists come, they've pivoted to opening up an online store for bespoke or artisan chocolates or things of the sort. So I think really the SME market is going to be a big driver of growth in the next few years. The next one would be probably providing new types of services. For example, supporting working capital for these businesses to be able to come online or things like corporate credit card for the SMEs so that when they want to subscribe to things like Shopify or Google Suites, we can help them to do that.
ALAN 9:44
Yeah. It just dawned on me that you guys must be a receptacle of massive amounts of data. So am I wrong in saying that there will be a number of ancillary financial services that you can layer on over time to the SME and other participants in the Xendit ecosystem?
TESSA WIJAYA 10:01
Oh, definitely. I think it's been really interesting to be processing. I think it's something like 65 million transactions per year. I can't even fathom what that's like. I mean, when we started, we could not imagine having to process that amount of information and also payments. So I think we may know a lot more about the behaviours of SMEs than the banks do. Because, Hey, you know what, all the payments, all the revenue are coming through us. So I think it's a no brainer for us to be expanding out to other parts of the business, whether it be lending or eKYC (the electronic form of Know Your Customer). It's definitely something that we're exploring to be able to develop for that next stage of growth.
ALAN 10:40
Just going back to the early days that you referenced. I personally remember meeting with management when Xendit was still more of a P2P payments platform, before evolving into its current model. Why and when did that transformation take place?
TESSA WIJAYA 10:54
Yeah, I think when the "bright eyed boys" came from Berkeley, they were really excited to bring Venmo to Indonesia. They had all sorts of amazing ideas about that, but quickly realising that the market wasn't ready. First things first, you can't even connect to your bank account direct to be able to pull the money into your wallet, unlike in the US. So really, Indonesia at the time was not ready for a Venmo-like peer-to-peer wallet. But what we started to see when we provided those services were our friends and other startups. They were saying: "Hey, guys, how are you able to do this? How are you able to disburse funds instantly? How are you able to accept funds and detect it and certainly, That's super duper amazing!" For people in other markets, this might seem like, hey such a super basic thing. But in Indonesia, basic stuff can be really, really complex. That was what payments was like before we came around. So really, it was by demand, because our startup friends said: "Hey, guys, can you build the same stuff, but for businesses?" That was why we got into payment gateway business.
ALAN 11:55
Understood, just a side question: are Moses Lo and Bo Chen, your fellow co-founders quite comfortable with being referred to as the "bright eyed boys of Berkeley"?
TESSA WIJAYA 12:07
I'm sure they would be. We have a really good repertoire. Don't you worry. I call them "my boys". Because we've got three Berkeley boys, and then myself the only woman out of all the cofounders.
ALAN 12:17
And is there a little bit of kind of a maternal, "den mother" role that you assume?
TESSA WIJAYA 12:22
Oh, definitely. I mean, back in the days Alan, we were in a house. So that's the "garage-version" of Southeast Asia's startup scene. And there was a lot of rowdiness, playing with Nerf guns and whatever else, having a lot of fun, as well as building the payment infrastructure of Indonesia. So I had to be the really strict one to be like: "Hey, let's buckle up. Let's get out there and that let's deliver our services."
ALAN 12:44
Excellent. That's really interesting colour. Now, you mentioned in an interview that travel was one of your largest verticals prior to the pandemic. I assume that got hit hard. What are three largest industry segments today?
TESSA WIJAYA 12:58
Yeah, the travel sector definitely got hit hard. With borders closing, flights were not able to take off. It's been a really tough year for these guys. What we've seen though, during this pandemic, is that other financial services, other digital services have really cropped up and have been the star of the show. So the likes of crypto exchanges, when people can't go outside, what they want to do, they want to I guess, discover how to invest in other asset classes. So there's the crypto exchanges booming. They're also all these digital products: gaming, Edtech, we're really seeing that volume increasing. Retail, of course. As I said before, a lot of SMEs' retail is really, really booming. That's simply because you can no longer sell in bazaars. You can no longer have your offline shops. You can no longer have just your Instagram account and have that be enough. And that's why they're coming to us and digitalizing very, very rapidly.
ALAN 13:53
Understood. Now, Tessa, with what other leading startup solutions do we integrate commonly?
TESSA WIJAYA 13:59
That's a really good question. I think what's been really interesting in payments now is the rise of these BNPL providers. So that's the "buy now pay later" providers. They've been asking for us integrate to with them, so we can provide that as a method of payment. And I'm seeing a lot of demand there. I mean, obviously, it's basically lending, but much more simplified because you understand how much you have to pay for each time. Other booming industries, like I said before, are accounting platforms for the mom-and-pop shops. The smaller platforms. They're really, really trying to grow really fast. They're subsidising transactions for smaller merchants. So I think that's been really, really interesting to see. And as I said before as well, these crypto exchanges, other FinTech players, they're really, really pushing hard as well in-market.
ALAN 14:49
Understood. Now Tess, Xendit has clearly become increasingly dominant in Indonesia. How much of a leap would it be to compete in cross border payments?
TESSA WIJAYA 14:59
Oh, it's definitely not a leap at all. We actually already do that. So, much like our payment platform, where we do a lot of B2B, we're providing the underlying piping to connect payments. We do this cross border as well. I like to say, Alan, it's kind of like moving money and trucks versus planes. Kind of the same. I don't want to oversimplify. But really, at this point in time, we're already helping a bunch of the bigger brand names to move money from one country to another.
ALAN 15:28
And so you're suggesting that the skill set that has made you so strong as a local player in Indonesia, is significantly graftable into cross border use cases?
TESSA WIJAYA 15:42
Yeah, definitely. I think the difference between payments in-market, and cross border payments is simply you have to add in the Forex part. You also have to add in the KYC part. And because we're a tech company, we've just been really, really good at that, in providing instant payments and really world class API's. It's been a no brainer to be able to expand to cross border.
ALAN 16:03
Understood. Now Tess, what are the three biggest projects that you are personally managing today, as COO of Xendit?
TESSA WIJAYA 16:10
Good question there. Amongst the list of hundreds, I will tell you my top three. Number one would be regionalization. I know you've heard a lot about Indonesia and Xendit's expansion into Indonesia. But we are now already in two markets. We launched in the Philippines late last year. We are Super-duper excited about this. But what this means is the team needs to think about being regional rather than a one-country player. So I think a lot about how do we build teams? How do we maintain culture? And how do we get these new markets up-and-running quickly and smoothly without any hiccups? The second part would be automation. I think we've gotten to this point in our startup journey where throwing more humans at it no longer works. So really thinking about how do we automate processes as much as possible in a way that scales to different markets? That's also important. Third, out of the really long list, is thinking about horizon to stuff. Some stuff that you have asked before. What's next? What's going to be the next big thing that will get Xendit to be that rocket ship and to grow even faster than we are today?
ALAN 17:15
Tess, are you finding many STEM (or science, technology, engineering and math), STEM-trained women in the workplace? And what are your broader thoughts on this matter?
TESSA WIJAYA 17:27
Alan, sadly, I think in Southeast Asia, and especially in Indonesia, women in STEM is still really, really hard to find. In fact, when we're hiring for software engineers, we've had to really increase the incentive so that there are more referrals for women software engineers. I think that's been something that's really heartbreaking for me. Look, Xendit has a really large female working population. But it remains to be higher percentage on the business side, or on the ops side, not really on the engineering side. So I've been really proud in putting forward some initiatives through my "Women in Tech" movement to encourage girls to go into STEM. So just recently, we did a "technovation" event whereby we coach a lot of young girls to make their apps and to be able to roll that out. I'm super-duper proud of that. And I'm hoping that we can continue this programme as time goes on.
ALAN 18:22
I'm looking forward to sharing that anecdote with my 13 year old daughter at dinner. Tess, thanks so much for joining us. Your crisp and clear explanations were super helpful. And it sounds like Xendit is riding atop multiple ways of growth. Definitely look forward to keeping in touch yeah?
TESSA WIJAYA 18:37
Definitely. So Alan, it's been such an enjoyable conversation. And thank you so much for having me.
ALAN 18:42
It's been a pleasure to host you. We hope our listeners have enjoyed today's episode. As always, please consider sharing any feedback that you have about the Indo Tekno podcast with us. Terima kasih telah mendengarkan. Sampai jumpa lagi!
Transcribed by https://otter.ai